February 29, 2008

Client’s Decision to Litigate or Settle

Attorney: Now that we’ve filed our lawsuit against your opponent, we need to have a “reality check” about how much money you’re prepared to invest in this case. You’re the client, so it’s your decision. As your attorney, I need to know as we go along if you want to keep litigating toward trial, or try to settle.

Client: Pardon me for sounding cynical, but you surprise me. I thought every attorney wanted to go all the way to trial, because they make a lot more money in legal fees that way.

A: Some attorneys do, but they often end up with unhappy clients. Unhappy clients sometimes sue their attorneys. I don’t want that aggravation. I’d rather be candid with you up-front.

C: As the client, what is the decision-making process that I should be going through?

A: First, you need to look at your available time and energy, financial resources, and emotional “stomach” for continuing to litigate the case all the way to trial. If you don’t have all of those ingredients in sufficient quantities, you may not want to go all the way. The stress of the case could last a few years.

C: Let’s say I have all of them to some degree.

A: Keep in mind that what you have now could be exhausted faster than you think in a year or two, even though you have a straightforward, non-complex case. Based on my experience, I can almost guarantee that it will take more time, energy, money, and fortitude than you first think to win a lawsuit.

C: Is that why I hear about so many lawsuits settling before trial?

A: That’s right. The commonly-quoted statistic is that anywhere from 90% - 97% of all civil lawsuits never reach trial. That’s virtually all of them. Some get dismissed, the rest settle.

C: That reminds me of the old adage that “war represents the failure of diplomacy.”

A. That’s right, going to trial represents the failure to settle.

C: But lawyer T.V. shows always make trial look so exciting and dramatic.

A: That’s because they’re just acting on T.V. A real trial is like a dramatic stage play, only in a courtroom. There are good guys and bad guys. The jury is trying to sort them out. For a client, it can be very nerve-racking.

C: I’ve never been a juror, so I don’t know firsthand how they operate.

A: A jury’s job in a civil lawsuit is to assign blame, then punish someone for it. Someone is always to blame in a lawsuit. It isn’t always the defendant, either, the one getting sued. Sometimes the jury blames the plaintiff for causing their own problems. Then you get a defense verdict.

C: What comes next for me as the client?

A: Second, you really have to take a cold, hard look at not just the strengths, but also the potential weaknesses, in your own case. Every lawsuit has both. Too many clients aren’t realistic about their case. They kid themselves. My job as your attorney is to try to highlight the strengths while minimizing the weaknesses wherever I can.

C: How do I recognize the weaknesses in my case?

A: By asking yourself each step of the way, what witnesses, documents, or other hard evidence do we really have in hand to put before a jury at trial to prove our case. It’s not enough to believe you’ve been injured. That’s an emotional response. You have to prove it with evidence. Those are two completely different things.

C: Once I decide that I want to pursue the lawsuit, and I’ve realistically assessed my case, what should I do then?

A: Third, you want to make sure that the amount of money damages you can actually prove at trial, using the available evidence, is not less than the amount of legal fees you will incur going to trial. If the damages are lower, it makes no economic sense to go to trial. You win the battle, but lose the war. You should settle instead.

C: And what if I do decide to settle instead of litigate? How do I know what amount of money to settle for?

A: There are different rules of thumb that attorneys use for that, depending upon whether you are a plaintiff or defendant in the lawsuit. First, under the plaintiff approach, you evaluate how much money you can realistically expect to recover at trial. Let’s say hypothetically $1 million. Next, you try to forecast the odds of success at trial. Say hypothetically that you believe you only have a 40% chance of winning $1 million in damages at trial. You settle for 40% x $1 million, or $400,000.

C: What is another settlement formula?

A: When you are a defendant in a lawsuit instead of a plaintiff, there is the “cost-of-defense” settlement. You determine how much more money in legal fees you’ll have to spend to defend the case all the way to trial, then offer that amount to the plaintiff to settle the case and stop the legal fees.

C: So in the end, it’s really all about the money.

A: Unless you have deep enough pockets to litigate a case just on principle alone, which most people don’t, civil litigation is all about dollars-and-cents at the end of the day. It should be a business decision, not an emotional decision. Part of my job will be to keep reminding you of that, one way or another.